Jump on the Oil & Gas Bandwagon? Part 1 - Ezion, Swiber, Swissco

A favorable news article on the Straits Times on Saturday offered some insights into trading this period of quantitative easing from major economies by targeting the (usual) Oil & Gas sector. However, it was highlighted that the favourite pick was not big cap stocks such as Semb Corp, Keppel Corp or Semb Marine. Instead, the article focused on mid cap stocks with good order books and growth potential such as Ezion, Ezra and Swiber. 

Ezion has definitely caught the attention of many traders over the last 1 plus year owing to a managerial and strategy turnaround that has been yielding very decent cash flows, increasing stockpile of cash as well as orders. It was also mentioned in the article that its strategy to have one of the most innovative fleet of jack-up liftboats that provides for offshore industries was a real gem in its managerial direction. Other players such as Swiber and Ezra are companies that been there and done that, very solidly and stably run over the years with a very localised culture but yet international presence. Swiber has an order book of $1.5billion in the pipeline, definitely more than sufficient revenue to last the next 3-5 years.

Of course, there are many other hidden gems that are Oil & Gas players that were not mentioned in the article such as Kreuz, Swissco and, the almost forgotten, Rotary.

Let's take a look at how you can participate in the Oil & Gas rally that has really mimicked the STI's performance over the last year (as seen from the ST news article on Saturday). Listed are technical charts of Ezion, Swissco and Swiber. For charts on Ezra, Rotary and Kreuz, refer to part 2 of this article here.

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A Good Stock Remains A Good Buy - Ezion Holdings, Semb Corp

A good stock always remains a good buy. 

The fast growing phase of the business Ezion has been operating is indeed a very compelling investment story. Since last year, its management has shown good urgency and quality in making decisions to steer the company forward after a sharp decline in its stock prices between Aug - Oct. And it seems that this has been well executed over into the new year.

Outlook - Buy. OCBC research too has a good coverage report on Ezion following its 2Q earnings report. Fair value estimate is $1.20 which represents some further 16% upside from current prices. Technically, Ezion holdings has broken the $1.025 resistance with high volumes traded on Friday following OCBC research maintaining a Buy call and its favourable earnings report.

• MACD (weekly) - MACD trending upwards with increasing positive divergence.
• RSI (25w) - RSI trending towards 70% but not at extremely overbought regions yet.
• Bollinger Bands - Bollinger bands are widening and prices are headed towards the upper bollinger band with room to maneuver. 
• Volume - High volume on 10 Aug with a large white candlestick bodes well technically for further demand increase.

SembCorp is a government-linked company with strong utilities and marine expertise. It recently announced a good performance in its 2Q earnings report with an increase net profit of S$190million compared to 175 a year ago. Order book stands at $6.6billion where half of which has been procured in this year. Its share prices were given a further adrenaline boost, crossing a critical resistance level, after its Marine subsidiary Sembcorp Marine announced that it secured contracts worth US$4billion from Brazil.

Outlook - Buy. Knocking on the door of $5.40 and overcoming it presents a great psychological triumph for the demand and supply forces in the stock market. Technically, this break gives good upside to Sembcorp stock prices and further good news coming out of the Oil & Gas sector lately just bodes well for this GLC to reach new heights.

• MACD - MACD trending upwards with positive divergence.
• RSI (25d) - RSI trending towards 70% with room to go.
• Bollinger Bands - Bollinger bands are widening and prices are riding the upper bollinger band already. Possible further volatility to ensue.
• Volume - No presence of any spectacular change in volumes traded but some slight increase in average volumes traded over the last 14 days. 

Weekly Stock Picks - CapitaMalls Asia and Ezion Holdings

CapitaMalls Asia is a particular counter that caught my attention over the last 2-3 weeks. It is also one of the stronger counters that have outperformed the STI by almost 20 basis points and turned in around a 23% YTD gain. Pretty impressive counter that has a solid balance sheet of increasing assets/long term investments over the last 4 years. High stockpile of cash that was recently (in 2011) used to acquire more investments which is pretty shrewd given the low valuations during that period. Stockpile of cash still remains pretty high at $930m as of 31 Mar 2011. Earnings, though, have been hit recently due to the sluggishly economy that has finally found its way eating a still solid track record of equity investments. Expect more decrease to come in this bulk contributing segment that is also pulled down by lowered operating income (though almost negligble compared to equities investment income).

Outlook - Short Term Rebound observed. Stars are aligning to put this stock on a upward trajectory. Nonetheless, pay attention to possible downside risks of price lowering to 1.3-1.35 (lower bollinger bands of both daily and weekly charts as well as major support horizontal at ~$1.35). Risk reward favourable and a good long opportunity is suggested. 

• MACD - Is trending upwards for last 2 trading weeks with suggestion of clearing the negative levels in the coming week.
• RSI (25d) - Is also steadily trending upwards to cross the 50% level.
• Bollinger Bands - Bollinger bands are narrowed with some possible big price movements to come.
• 20d MA - the 20d MA has clearly stabilised in the downward direction and there is some good suggestion of a local minimum. Another suggestion that upward momentum is building and this is a good opportunity to enter with low risk of selling pressure.
• 200d MA - Prices are now supported by 200d MA prevailing at support levels of $1.35. Very clear support.
• Volume - Buyer participation for the last 4 weeks has been dwindling but this has been stemming/flooring the prices at ~$1.35 levels.

Ezion Holdings is a counter that I have been seeking to own but prices have been sky rocketing since end 2011. There has been strong analyst coverage on this company and many are very bullish about its prospects with some brokerages even placing a TP $1.4 on it. Well, it is not too unexpected given that the company has been growing its income steadily since the downturn of post financial crisis in 2010. Cash reserves are being built up with some difficulty in the last year with this economic malaise. Nonetheless, the company has shown good vision in growing its business, securing more deals and income margin quite convincingly over the last 4 years. 

Outlook - Track for uptrend. The 20d MA is still showing a downtrend but other leading indicators are turning in favour of a rebound. In this jittery market, it is still better to wait for real confirmation of upward momentum to reflect in the 20d MA before deciding on the long position.

• MACD - Is trending upwards for last 2 trading weeks. Still far from the 0 level and momentum is still in the negative territory. 
• RSI (25d) - Is also steadily trending upwards to the 50% level.
• Bollinger Bands - Bollinger bands are narrowing.
• 20d MA - 20d MA is still downtrended with some suggestion of a minimum point to come but not totally indicative yet. Prices are suspended above the 20d MA precariously. More strength validation still required.
• 200d MA - Prices are seen bouncing off the 200d MA on Tuesday last week. Pretty much indicative of a strong stock in this market. 
• Horizontal Price line (red line in weekly chart) - Price is trading near the red line which is almost an average price of the stock since 2010. An almost well-valued stock right now. Considering also that earnings have been increasing, it is even more sufficient to say that the stock is slightly undervalued now.